Scotts Spreader Sourcing Decision
Business Opportunity
Move Production to China
Alternatives
Remain in the US
Was the right decision in 2000
Productivity improvements 6% cost reductions
Productivity improvements 6% reductions over next 5 years
190 employees
Trained in lean management
Workforce-driven improvement projects
Being trained as machine technicians
Significant general/manufacturing Skill
Quality Manager = Design Engineer
Carefully managed impressions/attitudes
Automation efforts in progress
Cut landed costs
Comparable to China
Higher Electricity Costs
Offset by shipping costs
In-mold Labeling
Key part of planned marketing campaign
Opportunity to apply to other Scotts products
Outsource to China
Already outsource complex components
Injection moulding = easy
Many suppliers
In Mold Labeling
Would require technology transfer
Would require Scotts to provide machinery
Would require new molds
$400K In new molds if moving to China
Labor Rates
$0.91/Hr
Increasing 40% (or more) or next 5 years
Productivity
Somewhat Lower
Freight Costs
$8 Million Annually
Less a percentage of the $1M current
Increasing at 3% rate
Lead time
8 weeks of inventory stockpile
Transition costs
Travel costs/ management time
Weekly Conference calls w/suppliers
Delayed detection of quality issues
Currency Risk
Political Risk
Direct investment in China
$8 Million Costs
One Year to accomplish
Offered direct control
Currency Risk
Benefits
Costs
Financial Analysis
Discount rate 15%
Capital improvements investment $500K Annually (US Plant)
Capital improvements investment $300K Annually (China Plant)
$400K In new molds if moving to China
$460K increased inventory to offset lead time
Plastic Resin - same cost world over
Regrind process savings $100K annually
Us Production Facility
Labour Costs
195 X 2080 * 16.25
16 X $125,000
Increasing at 3% annually
Offset by production improvements for the next 15+ years
Electricity Costs
8M Kilo-watt Hrs
$0.16/Kilo-watt hr
$0.025 surcharge per hour for 3 years
Costs expected to increase 50% by 2017
Partially offset by process improvements
Net increase 25% over 10 years
Overhead costs
$1 Million
Would revert back to corporate
30% of manufacturing costs (direct labor/electricity)
Assumptions
Sensitivity Analysis
Project Description
Implementation Plan
Recommendation
